The Bank of Japan has ended the world's only negative interest rate regime in a historic move

The Bank of Japan raised short-term interest rates to around 0% to 0.1% from -0.1%, according to its report. statement At the conclusion of a two-day policy meeting in March. A negative interest rate regime has been in place in Japan since 2016.

The Bank of Japan also scrapped its radical yield curve control policy for Japanese sovereign bonds, which the central bank used to target longer-term interest rates by buying and selling bonds when necessary.

However, the central bank will continue to buy government bonds worth “substantially the same amount” as before – currently about 6 trillion yen per month.

It will resort to “smart responses” in the form of increased purchases of Japanese government bonds and fixed-rate purchases of Japanese government bonds, among others, if there is a rapid rise in long-term interest rates.

By scaling back its radical asset purchases and quantitative easing, the Bank of Japan said it would stop buying exchange-traded funds and Japanese real estate investment trusts (J-REITS). It also pledged to slowly reduce its purchases of commercial paper and corporate bonds, with the aim of stopping this practice within about a year.

These changes represent a historic shift and represent the sharpest decline in one of the world's most aggressive monetary easing practices, which was aimed at pulling the Japanese economy out of a deflationary spiral.

The Japanese yen fell to as much as 149.92 against the dollar, while the Nikkei stock index oscillated between gains and losses after the Bank of Japan's decision. Yields on 10-year and 30-year Japanese government bonds fell.

Financial markets reorganized over the past week as local Japanese news reports and the results of initial wage negotiations sparked speculation that the Bank of Japan may normalize interest rates a month early, ahead of its April meeting.

The Bank of Japan has barely budged from its ultra-loose monetary policy stance even though “core core inflation” — which excludes food and energy prices — has exceeded its 2% target for more than a year, as policymakers saw price increases as largely imported.

Bank of Japan Governor Kazuo Ueda has repeatedly said that the results of this year's annual shunto wage negotiations will be key to achieving sustainable price increases. The Bank of Japan expects higher salaries to lead to a virtuous spiral as domestic demand drives inflation.

“Service prices continued to rise moderately, partly due to the moderate wage increases we have seen so far,” the Bank of Japan said in a statement.

“As this latest data and anecdotal information gradually shows that the virtuous circle between wages and prices is becoming more solid, the Bank believes that the goal of price stability will be achieved in a sustainable and stable way by the end of the year.” She added that the forecast period for the forecast report is January 2024.

Ongoing negotiations on spring “shunto” wages between Japanese companies and their unionized workers have so far resulted in a 3.7% weighted average rise in base pay, Renju, Japan's largest federation of trade unions, said on Friday in its first interim update.

This is stronger than last year's gains, which were the largest rise in three decades.

This is a developing story. Please check for updates.